Volcker Speaks Sense

Former Federal Reserve chairman Paul Volcker recently proclaimed that big financial institutions that are in trouble need to be properly liquidated and not saved.  We at the Institute could not agree more! The perverse economic incentives that come with bailouts only encourage more risky behavior in the future.  There is a role for the government and the court system to intervene when an integrally important institution is approaching insolvency, but their task needs to be guiding that institution to non-market-crashing liquidation and not a ‘bailout’. 

Volcker has some heavy criticism for the current Federal Reserve board, saying, “I don’t think there’s any question the Federal Reserve and other regulators were not on top of the housing picture”.  The words may seem like common sense to some, but it is encouraging to see an Obama administration advisor speak clear economic sense in the face of the often economically uninformed decisions being made in Congress and at the Fed.